- Fernanda Paul
- BBC World News
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Image source, Getty Images
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China aims to digitize the yuan, its national currency.
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Hundreds of years ago, there was an invention that revolutionized world trade: paper money (or banknote).
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This tool forever changed the way people exchanged their goods. Its origin is in China, where they called it “flying money”, and it is as old as the 7th century.
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Today, it is this same country that is leading what appears to be a new revolution for the planet’s economy: the digital currency.
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The government led by Xi Jinping began to implement the digital yuan in several cities in the country, including its capital Beijing, through the People’s Bank of China (PBOC).
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Although there are other countries in the race to issue these types of coins, this Chinese “pilot plan” represents the first real attempt to distribute a public digital currency of the great economies of the world.
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And, now, they intend to expand it: on Sunday, the deputy governor of the central bank, Li Bo, affirmed that it will expand the digital yuan experiments to more cities in the country after tests show that the digital yuan issuance and distribution mechanism – also called e-CNY-, is compatible with the existing financial system.
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Image source, Getty Images
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The Chinese government, led by Xi Jinping (pictured), began implementing the digital yuan in various cities across the country.
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The effects of the Asian giant’s decision can be enormous for other economies on the planet. To start, to USA, which in recent years has seen its hegemony as a world power constantly threatened after the rapid growth of the Chinese economy.
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According to experts, the digital yuan could end up shaking American power if it manages to unseat the historic supremacy that the US has had. dollar.
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Its release could also shake the cryptocurrency market, especially if the Chinese authorities tighten their regulations.
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But let’s start with the first thing: what is the digital yuan and how does it differ from existing virtual currencies?
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Characteristics of the digital yuan
The digital yuan aims replace part of the bills and coins On circulation. It will be controlled by the central bank of China, which will be in charge of issuing the new electronic money.
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Faster and cheaper international payments, as well as safer transactions, are among its advantages.
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Image source, Getty Images
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The People’s Bank of China will control the new electronic money.
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Unlike the cryptocurrencies or another type of digital representation of money used by commercial banking, this digital currency has its equivalent in the real world, that is, it is backed by physical money and subject to the regulations of the Asian giant.
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In addition, it does not enjoy the anonymity of cryptocurrencies, which is a decentralized tool that does not store personal data or historical records of its users’ transactions.
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In this way, experts assure that the digital yuan could allow the government of Xi Jinping monitor its economy and the transactions of its population.
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The Chinese government began investigating the digitization of its currency in 2014, although it was not until 2017 that a forex development program was approved.
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And today they are closer than ever, with a clear goal: that its use is expanded to all Chinese citizens and foreign visitors during the Winter Olympic Games to be held in February 2022.
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Why can it be a threat to the dollar?
Beijing aims to position the digital yuan for international use, where the US dollar has been supreme for decades.
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According to the Bloomberg news site, the administration of the president of the United States, Joe Biden, is closely monitoring the development of this currency as some officials would be concerned that the currency represents an attractive long-term offer for some countries, toppling the dollar as the world’s dominant reserve currency.
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Image source, Getty Images
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The administration of US President Joe Biden is closely monitoring the development of the digital yuan.
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US authorities would be redoubling their efforts to understand how the virtual yuan will be distributed and whether it could also be used to avoid US sanctions, says Bloomberg.
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China, however, has tried to allay these fears.
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Li Bo said on Sunday that his goal “is not to replace the US dollar or other international currencies.” “Our goal is to allow the market choose, pTo facilitate international trade and investment “, added.
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The deputy governor of the central bank also affirmed that, for the moment, the motivation of the digital yuan focuses “on domestic use” although he acknowledged that there could be cross-border use. “long-term”.
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In conversation with BBC News Mundo, the director of the SOAS China Institute of the University of London, Steve Tsang, explains that the launch of the digital yuan is part of the strategy of “internationalization” of the Chinese currency.
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Image source, Getty Images
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According to experts, the digital yuan could end up shaking American power if it manages to unseat the historic supremacy that the dollar has had.
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“The problem with the internationalization of the traditional currency is that China would have to allow its free trade, which the communist party will not accept because it will reduce its control. But the use of the digital version will allow it to be much easier and more extensive for trade. international without the party giving up its control “, he assures.
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Although Tsang claims that it is still too early to conclude that the digital yuan can unseat the dollar, he claims that the US currency “has already decayed“in recent years and that” as China becomes an increasingly important trading country, more countries that trade with it will think that the digital yuan can work well for them, then they will use it more and more. “
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“China and Xi Jinping have great ambitions, they want the country to be a top-level global player and rule-taker in the world, so it doesn’t surprise me that (the digital yuan) is being taken very seriously, “he concludes.
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What about cryptocurrencies?
Despite the fact that cryptocurrencies offer a different service than the virtual yuan, there are those who claim that China’s plan endangers the market for this type of money online.
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This has been stated Phillip Gillespie, CEO of B2C2, one of the largest providers of cryptocurrency liquidity and a leader in electronic over-the-counter trading.
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“Once a digital yuan is introduced, that will be one of the biggest risks in cryptocurrencies,” he told Bloomberg.
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The reason that could explain this risk has to do with the possible regulations that China may impose on cryptocurrencies, which could disrupt the liquidity of digital currency trading platforms.
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Image source, Getty Images
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Despite the fact that cryptocurrencies offer a different service than the virtual yuan, there are those who claim that China’s plan endangers the market for this type of money online.
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It must be considered that the Banco Popular of this country vetoed transactions with bitcoins for employees and banking entities in September 2017, since it considered that this type of operation is an illegal collection of funds.
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However, this Sunday the deputy governor of the central bank, Li Bo, called the bitcoin an “investment alternative”, marking a significant change of tone in this regard although he added that they are still investigating and analyzing the regulatory requirements that they intend to impose on it.
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Other pioneering exponents of cryptocurrencies have also claimed that, with the possible outsourcing of the virtual yuan, this market loses its potential.
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“Someday everyone will use China’s digital currency“Chandler Guo, Bitbank owner and bitcoin entrepreneur, told the BBC, who a few years ago believed that bitcoin would change the world (and replace the dollar) but now sees the digital yuan as the new emerging force.
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However, there is still time to understand the real scope that the digital yuan will have. Meanwhile, many countries are racing to prepare their own digital currencies in order not to be left behind should China once again surprise the world with its currency revolution.
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